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BRITAIN AFTER THE ELECTION OF DONALD TRUMP
Reviewed by ANDRE BEAUMONT
Donald Trump is a real estate entrepreneur.
He knows what capital is. He also understands entrepreneurial business unlike so many pro-corporate, neoliberal, social democrats.
You cannot do much in the real estate world without capital - capital that is initially not your own but that you have to borrow.
The greatest limitation on achieving what you want will not be a lack of income but a lack of capital as, indeed, so often is the case in life for ordinary individuals.
Get your timing right, develop in an area where there is demand and do not overspend and you can substantially add to the concrete value of the world in which you live without going near the concept that every asset must be rent-seeking (with all the potential to exploit someone in the process) and only to be valued as a multiple of its yield.
So one has some sympathy with DJT wishing to change the banking rules to make it easier for banks to lend.
Existing Basel rules seem to mean that with some exceptions, like consumer credit, you need to have a near perfect income stream to service the interest and near perfect asset backing to cover the default risk to borrow at all.
This, of course, favours the already powerful and not the ordinary joe.
Why come to a bank at all, one might ask, if one has such perfect finances?
In the past one came to a bank because one had an imperfect income stream or imperfect asset position - but not necessarily both - and it was the job of the bank to find a way to help out. Thus banks helped what is now called social mobility to play out.
The real estate developer nearly always has imperfect finances unless it is already a mega-corporation with an existing portfolio of rental property and a strong balance sheet.
Existing rules favour such mega-corporations and this holds true in nearly all domains of business.
So why is this a political issue?
Well, look back at the beginning of the New Labour years in Britain.
The country still had numerous small builders, small developers and renovators playing a part in the property market.
They built or improved and then moved on. They, crucially, provided short-term liquidity to the market and a wide range of homes from which the home-hunter could choose.
Then the banking rules changed and these together with the fact that social democrats tend to prefer seeing corporations make profits rather than individuals moved the market towards buy-to-let owners acting as the purchasers of last resort rather than small developers and renovators.
These, of course, were long-term holders who provided regular income to the banks, which Labour philosophy preferred, but whose advent reduced liquidity to the market and choice to the home-hunter. Certainly, they were not so instrumental in capital formation as the small developers.
A worsening capital gains tax regime and the unpopularly low starting point for inheritance tax further drove out individuals from providing market liquidity.
If one is logical, Marxist-inspired deprecation of the value of capital to ordinary people is always surprising.
We already, to some extent, live in a post-income, post-yield world. Incomes for many demographics are declining. Yields on savings accounts are close to zero.
Over 5% of British GDP is financed by the balance of payments capital account. About £40bn has been set aside from the capital of British banks to compensate individuals for financial product misselling and what has been distributed of that, which has often ended up in the pockets of the poorest people, has most likely at times prevented GDP growth going into negative territory.
Were it not for these two employment sustaining items, trade union membership would probably be half a million lower.
On top of this there is monetary creation by Britain's banking sector and by the Bank of England through QE.
The ideas that Britain 'can pay its way' by making stuff or that there can be 'full employment' are shot through with holes and economic theories have to change to accommodate the greater importance of capital.
A post-Brexit Britain should be bold and abolish personal capital gains tax and inheritance tax on estates below £3 million.
It can be paid for by removing interest relief on borrowings by individuals and companies.
Britain needs to be the place that entrepreneurial individuals want to find themselves in and such tax changes would do a lot to bring it about.
Silently, we have lost a decade of entrepreneurs making it through to being to being very successful because of government's nannying of and meddling in innovation and anti-individual taxation policies.
Only in the City has innovation gone forward apace and a challenge will be to make sure it continues.
A strand of conservatism remembers that in the 19th century conservatism was about the quiet enjoyment of personal rights.
If neoliberalism falters, as it might under DJT, conservatism can go back to this set of roots (and quite a few others).
Social democracy, for all the gains made in its heyday, with its patronising of the individual has nowhere to go.